Explaining currency crises: a duration model approach

In this paper we estimate a duration model for OECD countries during the 1970-97 period. We use semiparametric methods to estimate a model with unrestricted base-line hazards and test if the time length already spent on a tranquil period is a determinant of the probability of exit into a currency crisis state. The results indicate, first, that increases in export growth, bank deposits growth and openness decrease the probability of exit into a currency crises state. Whereas, increases in import growth, claims on government and foreign portfolio investment, and appreciated REER, increase the probability of currency crises. And, second, the existence of a highly significant negative duration dependence. The highest probability of exit into a currency crash state is given at the initial of the tranquil period. (C) 2004 Elsevier Ltd. All rights reserved.